Stock picking

Carbon that has not yet been emitted should not be used to predict stock returns. While this sounds obvious, prior research papers have done exactly that. This critical observation forms the basis for the Robeco Institutional Asset Management research team’s re-examination of the relationship between climate risk and asset pricing. Investors and academics alike have sought to understand how environmental factors influence stock returns, often assuming that higher emitters command a risk premium. However, the timing of data availability is crucial in quantitative strategy formation, and misalignments here can lead to spurious conclusions about the pricing of carbon emissions.

Quantitative strategy research is rarely about discovering a single “perfect” trading rule. In practice, robust portfolios emerge from a structured research process that filters ideas, evaluates evidence, and combines complementary strategies.

To make the process concrete, we use value-based equity strategies as our working example. However, the goal of the article is not to identify the ultimate value strategy, but to illustrate how a systematic research workflow can be used to build a diversified portfolio of strategies around any investment hypothesis.

An interesting transaction-level study we take a closer look at today asks who takes the other side of trades when the most pro-cyclical players in markets — primarily asset managers — buy in booms and sell in busts. The paper uses comprehensive transaction data across major European equity and interest-rate cash and derivatives markets to classify counterparties by sector and to measure, at horizons from 15 minutes to one month, which sectors absorb net flows from pro-cyclical investors. Dealer banks emerge as the dominant liquidity providers across asset classes. At intraday and daily horizons, dealer banks absorb the vast majority of the net flow coming from asset managers. Other active liquidity sources, such as principal trading firms and hedge funds, play only minor roles.

Market concentration has become one of the most discussed structural risks in today’s equity markets. A small group of mega-cap stocks—often the largest five to ten names—now accounts for an unusually large share of major market indices. This has led to widespread concerns that such concentration makes markets more fragile and that elevated index weights at the top may foreshadow weaker future returns. Many investors worry that history is repeating itself and that extreme concentration today implies disappointment tomorrow.

One year is again behind us (in this case, it was 2025), and we are all a little older (and hopefully richer and/or wiser). Turn-of-the-year period is usually an excellent time for a short recap. Over the past 12 months, we have kept our pace and published nearly 70 short analyses of academic papers and our own research articles. So let’s summarize 10 of them, which were the most popular (based on the Google Analytics ranking). The top 10 is diverse, as usual; once again, we hope that you may find something you have not read yet …

Over the past seven decades, U.S. equity-market volatility has roughly doubled—from about 10% to 20%—and this increase is concentrated at the market level and at high frequencies (daily volatility up by ~130%, weekly by ~75%, monthly by ~40%). A new paper by Lars Lochstoer and Tyler Muir argues that this structural change is not driven by macroeconomic fundamentals or firm-level shocks but by the dramatic growth of index-level trading (futures, ETFs, index mutual funds, and extended trading hours). Using statistical investigations—the 1997 introduction of E‑mini S&P 500 futures and historical NYSE trading‑hour changes—the authors provide causal evidence that easier and larger trading of the market portfolio has raised aggregate volatility through higher trading volume and a shift toward systematic demand shocks.